KeyCorp, a pioneer of fee income businesses in the early 1990s, appears to be fumbling for a strategy as the decade comes to a close, analysts say.
The Cleveland banking company's "top line needs work, and the issue of market presence and loss of market share needs to be resolved," said Nancy A. Bush, banking analyst at Ryan, Beck & Co. in Livingston, N.J.
Ms. Bush made her opinion known Wednesday in a memo to clients that suggests they steer clear of KeyCorp shares.
"There is not yet an exciting reason to buy this stock," said Ms. Bush, who officially rates shares a "hold."
KeyCorp was up $1.1875, to $36 for the day.
The company "seems to still be actively seeking a strategy," Ms. Bush said. "At this juncture, KeyCorp is not identified with any area of excellence."
The strong words underline some analysts' growing frustration with banking companies that are propping up earnings with one-time gains while failing to produce longer-term, consistent growth.
For instance, KeyCorp in the second quarter will use special gains from branch sales, generating $30 to $35 million of pretax revenue, to help boost earnings, Ms. Bush said.
She is not the only analyst to look at KeyCorp with a critical eye.
The company's "core revenue-generating ability is a question mark," said Sandra J. Flannigan, who follows KeyCorp for Merrill Lynch & Co.
Both Ms. Flannigan and Ms. Bush say the company's pending purchase of investment firm McDonald & Co. will be pricey and will fail to deliver much bottom-line punch this year or next.
Ms. Flannigan is also skeptical that the deal will give KeyCorp leverage with customers in the Pacific Northwest, because the region already has so many solidly entrenched investment firms.
While KeyCorp was being rapped, shares of Norwest Corp. were up 68.75 cents, to $36.6875, on positive words from James M. Schutz, banking analyst at ABN Amro.
The comments counter some of the negative statements made by other market watchers after Norwest's announcement this spring to merge with Wells Fargo & Co.
Mr. Schutz said he came away from a recent meeting with the Minneapolis company's management convinced that they can deliver superior core operating income growth through the combination.
Norwest, which will take the Wells Fargo name, will probably show earnings per share growth of 13% to 17% over the next two to four years, Mr. Schutz said.
For the day, bank stocks fared well, outpacing the gains of broader markets. The Standard & Poor's bank index rose 2.89% and the Dow Jones industrial average was up 1.08%. The Nasdaq bank index increased 0.57%, and the S&P 500 was up 1.19.
Banks have gained less ground than other industry groups this year and have some catching up to do, said Thomas McCandless, banking analyst at CIBC Oppenheimer.
He especially likes State Street Corp., up $1.3125, to $69.8125; and Northern Trust Corp., which gained $1.125, to $71.50; organizations propelled by fee income from custodial and other corporate and institutional services.
Northern Trust is also becoming especially adept at wooing the growing number of millionaires the booming economy has spawned, Mr. McCandless said.
Shares of Capital One Financial rose $4.3125, to $114.875; and SLM Holdings was up $2.4375, to $46.50, on word the companies' shares will be added to the S&P 500 index.